HTC — Interim / Quarterly Report 2016

Oct 25, 2016

Peter Shen, CFO October 25

th , 2016

HTC CORPORATION 3Q16 BUSINESS REVIEW

DISCLAIMER STATEMENT

• This presentation and release contain "forward-looking statements" which may include projections of future results of operations, financial condition or business prospects based on our own information and other sources.
• Our actual results of operations, financial condition or business prospects may differ from those expressed or implied in these forward-looking statements for a variety of reasons, including but not limited to market demand, price fluctuations, competition, international economic conditions, supply chain issues, exchange rate fluctuations and other risks and factors beyond our control.
• The forward-looking statements in this release reflect the current belief of HTC as of the date of this release. HTC undertakes no obligation to update these forward-looking statements for events or circumstances that occur subsequent to such date.

EXECUTIVE SUMMARY

3Q16 Financial Highlights:

• Revenue of NT\$22.2 billion with gross margin of 16.1%
• Operating loss of NT\$2.0 billion with operating margin of –9.0%
• Net loss after tax of NT\$1.8 billion, or -NT\$2.18 per share

Business Update

• 3Q result saw strong improvement, with continued momentum across smartphone and VR, in addition to

• prudent cost control resulting in lowered operating expense.
• HTC saw continued sales momentum for the HTC VIVE systems across both consumer and enterprise diverse selection of virtual reality experiences to VIVE owners.

markets, while the virtual reality content store, VIVEPORT, launched in late September, aims to bring the most

REVENUES AND OPERATING PROFIT

GROSS AND OPERATING MARGINS

3Q 2016 P&L (CONSOLIDATED)

NT\$bn	3Q 15	2Q 16	3Q 16
REVENUES	21.4	18.9	22.2
GROSS PROFIT	3.9	2.1	3.6
OPERATING EXPENSE	8.8	6.4	5.6
SALES MKTING.	3.9	2.6	2.2
RESEARCH DEV.	3.6	2.9	2.5
GENERAL ADM.	1.3	0.9	0.9
OPERATING PROFIT	-4.9	-4.2	-2.0
NPBT	-4.5	-3.0	-1.8
NPAT1	-4.5	-3.1	-1.8
GROSS MARGIN (%)	18.0%	11.4%	16.1%
OPERATING MARGIN (%)	-23.1%	-22.5%	-9.0%
EPS2 (NT\$)	-5.41	-3.71	-2.18

1 Attributable to stockholders of parent company, excluding minority interest. 2 EPS was calculated based on number of outstanding shares at that time.

3Q 2016 BALANCE SHEET (CONSOLIDATED)

Cash¹ TOTAL EQUITY² METRICS³

NT\$bn	Sep 30, 15	Jun 31, 16	Sep 30, 16
TOTAL ASSETS	136.3	115.3	111.7
Cash1	44.0	41.5	34.3
AR	17.0	14.1	17.6
INVENTORY	20.8	16.9	19.3
OTHER ASSETS	54.5	42.8	40.5
TOTAL LIABILITIES	67.5	57.4	56.7
TOTAL EQUITY2	68.8	57.9	55.0
METRICS3
DAYS SALES OUTSTANDING	110	76	76
INVENTORY TURNOVER DAYS	126	115	105
DAYS PAYABLE OUTSTANDING	184	145	139

1. Includes time deposits with original maturities more than 3 months

2. Attributable to stockholders of parent company, excluding minority interest.

3. Financial metrics are calculated based on quarterly numbers, starting from 2Q 2012

HTC CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS (UNREVIEWED)(In Thousands of New Taiwan Dollars)

	Se ber 30 tem p	20 16 ,	Se ber 30 tem p	20 15 ,		Se ber 30 tem p	20 16 ,	Se ber 30 tem p	20 15 ,
	Am t oun	%	Am t oun	%		Am t oun	%	Am t oun	%
AS SE TS					LIA BIL ITI ES AN D E QU ITY
CU RR EN T A SS ET S					CU RR EN T L IAB ILIT IES
Ca sh and sh iva len ts ca equ	\$ 30 243 330 , ,	\$ 27	43 279 478 , ,	32	Fin ial liab iliti at f air val thr h p rof it o r lo \$ nt anc es ue oug ss - cu rre	167 137 ,	\$ -	250 246 ,	-
Fin ial fair lue th h p rof it o r lo ets at nt anc ass va rou g ss - cu rre	017 18,	-	358 254 ,	-	No nd de abl te a tra pay es	29 433 794 , ,	26	168 29 747 , ,	22
Av aila ble -fo le f ina nci al a ts - nt r-sa sse cu rre	4 277 64 ,	-	-	-	Oth abl er pay es	18, 737 270 ,	17	345 26 180 , ,	19
De bt i ith ive ark stm ent act et - nt nve s w no m cu rre	7, 84 1	-	8, 280	-	Cu liab iliti nt t rre ax es	145 466 ,	-	146 414 ,	-
Tra de eiv abl t rec es, ne	17, 588 035 ,	16	863 17, 025 ,	13	Pro vis ion t s - cur ren	4, 883 012 ,	4	576 7, 303 ,	5
Oth eiv abl er rec es	342 39 1 ,	-	278 346 ,	-	Oth t lia bili ties er cur ren	2, 849 280 ,	3	058 3, 324 ,	3
Cu nt t ets rre ax ass	109 990 ,	-	319 933 ,	-	To tal t lia bili ties cur ren	959 56 215 , ,	50	807 66 95 1, ,	49
Inv orie ent s	19, 257 388 ,	17	090 20 823 , ,	15
Pre nts pay me	2, 623 415 ,	3	349 5, 190 ,	4
fo No ent set s h eld le n-c urr as r sa	-	-	623 1, 77 1,	1	NO N-C S UR RE NT LIA BIL ITIE
Oth t fin ial ets er cur ren anc ass	4, 105 82 1 ,	4	947 752 ,	1	De fer red lia bili ties tax	65 97 1 ,	-	96 330 ,	-
Oth t as set er cur ren s	66 876 ,	-	739 140 ,	-	Gu e d sits cei ved nte ara epo re	23 362 ,	-	25 987 ,	-
To tal t as set cur ren s	568 74 640 , ,	67	006 89 845 , ,	66	Oth nt l iab iliti er non -cu rre es	392 037 ,	1	019 414 ,	1
					To tal nt l iab iliti non -cu rre es	370 48 1,	1	336 536 ,	1
NO N-C UR RE NT AS SE TS
Av aila ble -fo le f ina nci al a ts - ent r-sa sse no n-c urr	9 2	-	59	-	To tal liab iliti es	329 56 697 , ,	51	143 67 488 , ,	50
Fin ial ets d a t co st - ent anc ass m eas ure no n-c urr	2 3, 21 504 ,	3	3, 348 44 1 ,	3
De bt i ith ive ark stm ent act et - ent nve s w no m no n-c urr	625 8,	-	-	-
Inv d fo ing uity eth od est nts nte me ac cou r us eq m	37 52 1, 0	-	227 157 ,		EQ UIT Y -
Pro lan nd ipm ty, t a ent per p equ	145 12, 300 ,	11	257 17, 90 1,	13
Inv est nt p ert ies t me rop , ne	1, 560 744 ,	1	175 1, 785 ,	1	Sh ital rdin sh are ca p - o ary are s	8, 228 499 ,	7	722 8, 282 ,	6
Inta ible set ng as s	4, 145 869 ,	4	893 6, 065 ,	5	Ca ital lus p su rp	15, 606 473 ,	14	375 15, 31 1,	11
De fer red tax set as s	8, 808 502 ,	8	264 8, 318 ,	6	Re tain ed nin ear gs
Re fun dab le d sits epo	1, 466 192 ,	1	1, 600 23 1 ,	1	Leg al r ese rve	18, 297 655 ,	16	655 18, 297 ,	13
Lon iva ble ter g- m r ece s	749 433 ,	1	773 1, 47 1,	1	Un riat ed nin app rop ear gs	13, 984 26 1 ,	13	25 206 76 1 , ,	19
Ne t de fine d b fit a t - nt ene sse non -cu rre	435 90 ,	-	038 123 ,	-	Oth ity ( er equ	1, 150 545 ) ,	( 1)	792 1, 872 ,	1
Oth nt a ts er non -cu rre sse	4, 150 193 ,	4	199 5, 572 ,	4	Tre har asu ry s es	-	( -	) 200 955 ,	-
To tal nt a ts non -cu rre sse	104 37 023 , ,	33	487 46 413 , ,	34	T l eq uity ota	343 54 966 , ,	49	350 68 770 , ,	50
TO TA L	\$ 672 111 663	\$ 100	136 258 493	100	\$ TO TA L	111 663 672	\$ 100	136 258 493	100
	, ,		, ,			, ,		, ,

HTC CORPORATION AND SUBSIDIARIESCONSOLIDATED INCOME STATEMENT (UNREVIEWED)(In Thousands of New Taiwan Dollars, Except Loss Per Share)

	Fo he N ine Mo hs En de d Se be r 3 0 r t nt tem p
	20 16			20 15
		Am nt ou	%	Am	nt ou	%
O P E R A T I N G R E V E N U E S	\$	5 5, 9 13 44 0 ,	10 0	\$ 9 5,	9 3 6, 0 8 1	10 0
O P E R A T I N G C O S T		48 8 0 4, 8 29 ,	8 7	77	2 5 5 6, 20 ,	8 1
G R O S S P R O F I T		7, 10 8, 6 11	13	18	79 3 79 8 , ,	19
O P E R A T I N G E X P E N S E S
Se l l ing d m ket ing an ar		6, 73 6, 76 3	12	13	9 8 8, 3 8 5 ,	15
Ge l a d a dm in istr ive at ne ra n		3, 12 7, 9 0 5	6	3,	78 0, 6 71	4
Re h a d de lop nt se arc n ve me		8, 28 4, 5 22	15	10	6 6 74 9 9 , ,	11
To l o ing ta t p era ex p en se s		18 14 9, 19 0 ,	3 3	28	2 44 4, 0 5 ,	3 0
O G O S S P E R A T I N L	(	) 11 0 40 5 79 ( , ,	20 )	( 10	0 6 4, 17 3 ) ,	( 11 )
N O N- O P E R A T I N G I N C O M E A N D E X P E N S E S
Ot he inc r om e		5 3 6, 6 18	1		43 9, 10 5	-
Ot he ins d los r g a an se s		3, 3 18 41 7 ,	6	( 2,	25 3, 6 8 8 )	( 2 )
F ina ia l co sts nc	(	4, 3 6 9 )	-	(	4, 6 42 )	-
S ha f t he f it o los f a iat d j int ntu re o p ro r s o sso c es an o ve re	(	) 46 0 76 ,	-	(	) 8, 22 9	-
To l no ing inc d e ta t n-o p era om e a n xp en se s		3, 8 0 4, 5 9 0	7	( 1,	) 8 27 45 4 ,	( ) 2
L O S S B E F O R E I N C O M E T A X	(	) ( 7, 23 5, 9 8 9	) 13	( 11	) 8 9 1, 6 27 ,	( ) 13
I N C O M E T A X E X P E N S E		22 8, 72 7	-		25 9, 5 15	-
O S S O O L F R T H E P E R I D	\$ (	7, 46 4, 71 6 ) (	13 ) (	\$ 12	15 1, 14 2 ) ,	( 13 )
O S S S L P E R H A R E
Ba ic s	\$ (	) 9. 0 5	(	\$	) 14 .6 8

HTC CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENT OF CASH FLOWS (UNREVIEWED)(In Thousands of New Taiwan Dollars)

	Fo r th e N ine M hs En ded Se be ont tem r 3 0 p
		20 16	20 15
CA SH FL OW S F RO M O PE RA TIN G A CT IVI TIE S
Los s b efo inc e t re om ax	\$ (	\$ 7, 235 989 ) ( ,	11, 89 1, 62 7)
Ad jus s fo tm ent r:
De cia tio pre n e xpe nse s		1, 41 7, 40 5	1, 964 93 6 ,
Am iza tio ort n e xpe nse s		1, 26 9, 074	1, 45 7, 394
Ba d d ebt ex pe nse s		40 0, 049	-
Fin ost anc e c s		4, 36 9	4, 642
Inte inc ts res om e	(	7) ( 30 5, 96	) 303 048 ,
Div ide nd inc om e	(	1) ( 138 76 ,	) 37 932 ,
Co atio of loy sha bas ed ost nts mp ens n c em p ee re- pay me		363 131 ,	48 1, 38 9
Sh of th rof it o r lo of oci nd jo int ate ntu are e p ss ass s a ve re		46 076 ,	8, 22 9
Ne ain dis al o f p lan nd uip t g ert t a nt on pos rop y, p eq me	(	3, 198 36 7) ( ,	17, 092 )
Tra nsf of rtie lan nd uip ts a nt t er pro pe s, p eq me o e xpe nse		-	8, 33 9
Imp air los -fin ial nt ets me s o n n on anc ass		2, 518 889 ,	4, 37 0, 42 6
Ch in o ing nd liab iliti rat set ang es pe as s a es
De in fina nci al i s h eld fo ad ing nst ent r tr cre ase rum		20 8, 069	23 6, 008
De in de eiv ab les tra cre ase rec		1, 23 0, 864	12, 114 42 1 ,
De in oth eiv ab les cre ase er rec		133 609 ,	304 121 ,
Inc in i ries nto rea se nve	(	2, 652 640 ) ( ,	5, 060 56 6) ,
De in nts cre ase pre pay me		1, 777 553 ,	1, 43 5, 757
De ( inc se) in oth t a ts cre ase rea er cur ren sse		( 27 735 ,	0) 41 47 ,
De in oth nt a ts cre ase er non -cu rre sse		574 424 ,	1, 87 1, 61 1
De in nd de ab les not tra cre ase e a pay	(	1) ( 164 59 ,	) 14, 056 175 ,
De in oth ab les cre ase er pay	(	) ( 6, 202 945 ,	) 5, 994 053 ,
( De ) inc in p isio cre ase rea se rov ns	(	1, 109 24 6) ,	1, 46 2, 39 7
( De ) inc in o the lia bili ties ent cre ase rea se r c urr	(	84 0, 48 3)	2, 180 924 ,
Inc in o the liab iliti nt rea se r n on -cu rre es		392 03 7 ,	414 019 ,
Ca sh d in tio use op era ns	(	11, 48 5, 705 ) (	9, 08 7, 35 0)
Inte cei ved t re res		26 8, 989	233 78 1 ,
Inte aid t p res	(	4, 36 9) (	4, 642 )
Inc id e t om ax pa	(	1) 34 6, 24 (	303 184 ) ,
Ne sh d in ting tivi ties t ca use op era ac	(	6) ( 11, 56 7, 32	5) 9, 161 39 ,

HTC CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENT OF CASH FLOWS (UNREVIEWED)(In Thousands of New Taiwan Dollars)

	Fo r th e N ine M hs En ded Se be r 3 0 ont tem p
		20 16		20 15
CA SH OW S F RO ES G A CT S FL M INV TIN IVI TIE
Pa ire de bt inv ith ive ark ent s to est nt w act et ym ac qu me no m	(	8, 665 )		-
Pa ire fina nci al a red ent s to ts at st ym ac qu sse me asu co	(	136 616 ) ,	(	645 44 9) ,
Ac isit ion of iate qu as soc s	(	352 23 1) ,		-
Pro ds fro m d isp l of inv d f usi uity eth od est nts nte cee osa me ac cou or ng eq m		182 578 ,		-
Pro ds fro m d isp l of s h eld fo le ent set cee osa no n-c urr as r sa		6, 060 000 ,		-
Pa s fo lan nd uip ent ert t a nt ym r p rop y, p eq me	(	47 7, 582 )	(	728 32 0) ,
Pro ds fro m d isp l of lan nd uip ert t a nt cee osa pr op y, p eq me		2, 92 6, 777		312 59 7 ,
Inc in r efu nda ble de its rea se pos		-	(	1, 33 7, 49 1)
De in ref und ab le d sits cre ase epo		114 150 ,		-
Pa s fo r in ible ent tan set ym g as s	(	) 75 146 ,	(	) 86 543 ,
Inc in o the fin ial ent ets rea se r c urr anc ass	(	1) 5, 53	(	) 41 7, 993
Div ide nds cei ved re		844 83 ,		37 932 ,
Ne sh d f (u sed in) inv ing tivi ties t ca ate est ge ner rom ac		578 8, 31 1,	(	2, 865 26 7) ,
CA SH OW S F RO CIN G A CT S FL M FIN AN IVI TIE
Re fun d o f g de its eiv ed tee ua ran pos rec	(	6, 797 )	(	17, 243 )
e C Div ide nds id t of th pa o o wn ers om pa ny		-	(	314 636 ) ,
Bu bac k o f tr sh y- eas ury are s	(	) 43 6, 869	(	20 0, 955 )
Ne sh d in fin ing tivi ties t ca use anc ac	(	44 3, 666 )	(	532 834 ) ,
EF FE CT O F E XC HA NG E R AT E C HA NG ES O N C AS H A ND CA SH EQ UIV AL EN TS	(	1, 404 055 ) ,		95 41 6 ,
NE T D EC RE AS E I N C AS H A ND CA SH EQ UIV AL EN TS	(	5, 103 46 9) ,	(	12, 464 080 ) ,
CA SH AN D C AS H E QU IVA LE NT S, BE GIN NIN G O F P ER IOD		799 35 34 6, ,		55 743 558 , ,
CA SH AN D C AS H E QU IVA LE NT S, EN D O F P ER IOD	\$	30 243 33 0 , ,	\$	43 27 9, 47 8 ,